Starting Small and Commitment

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Starting Small and Commitment

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Joel Watson

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Joel Watson

Abstract

I study a model of a long-term partnership with two-sided incomplete information. The partners jointly determine the stakes of their relationahip and individually decide whether to cooperate with or betray each other over time. I characterize the extremal -- interim incentive efficient -- equilibria. In these equilibria, the partners generally "start small," with the level of interaction growing over time. The types of players separate quickly. Further, cooperation between "good" types is viable regardless of how pessimistic the players are about each other initially. The quick nature of separation in an extremal equilibrium contrasts with the outcome selected by a strong renegotiation criterion (as studied in Watson (1999)).

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number 99-08.

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Date of creation: Apr 1999
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Handle: RePEc:cdl:ucsdec:99-08

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Other versions of this item:

Article
- Watson, Joel, 2002. "Starting Small and Commitment," Games and Economic Behavior, Elsevier, vol. 38(1), pages 176-199, January. [Downloadable!] (restricted)
Paper
- Joel Watson, 1999. "Starting Small and Commitment," Cowles Foundation Discussion Papers 1217, Cowles Foundation, Yale University. [Downloadable!]

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Myerson, Roger B, 1983. "Mechanism Design by an Informed Principal," Econometrica, Econometric Society, vol. 51(6), pages 1767-97, November. [Downloadable!] (restricted)
Other versions:
- Roger B. Myerson, 1981. "Mechanism Design by an Informed Principal," Discussion Papers 481, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
James E. Rauch & Joel Watson, 1999. "Starting Small in an Unfamiliar Environment," NBER Working Papers 7053, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- James E. Rauch & Joel Watson, 1999. "Starting Small in an Unfamiliar Environment," Cowles Foundation Discussion Papers 1218, Cowles Foundation, Yale University. [Downloadable!]
- James E. Rauch & Joel Watson, 1999. "Starting Small in an Unfamiliar Environment," University of California at San Diego, Economics Working Paper Series 96-28r, Department of Economics, UC San Diego. [Downloadable!]
- Rauch, James E. & Watson, Joel, 2003. "Starting small in an unfamiliar environment," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 1021-1042, September. [Downloadable!] (restricted)
Hart, Oliver D & Tirole, Jean, 1988. "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, Blackwell Publishing, vol. 55(4), pages 509-40, October. [Downloadable!] (restricted)
Other versions:
- Oliver D. Hart & Jean Tirole, 1987. "Contract Renegotiation and Coasian Dynamics," Working papers 442, Massachusetts Institute of Technology (MIT), Department of Economics.
Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Blackwell Publishing, vol. 52(4), pages 557-73, October. [Downloadable!] (restricted)
Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March. [Downloadable!] (restricted)
Crawford, Vincent P, 1985. "Efficient and Durable Decision Rules: A Reformulation," Econometrica, Econometric Society, vol. 53(4), pages 817-35, July. [Downloadable!] (restricted)
Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November. [Downloadable!] (restricted)
Other versions:
- Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
Watson, Joel, 1999. "Starting Small and Renegotiation," Journal of Economic Theory, Elsevier, vol. 85(1), pages 52-90, March. [Downloadable!] (restricted)
Other versions:
- Joel Watson, 1997. "Starting Small and Renegotiation," University of California at San Diego, Economics Working Paper Series 97-17, Department of Economics, UC San Diego. [Downloadable!]
Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January. [Downloadable!] (restricted)
Cramton, Peter C. & Palfrey, Thomas R., 1990. "Ratifiable Mechanisms: Learning from Disagreement," Working Papers 731, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
Other versions:
- Peter Cramton & Thomas R. Palfrey, 1995. "Ratifiable Mechanisms: Learning from Disagreement," Papers of Peter Cramton 95geb, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998. [Downloadable!]
- Cramton Peter C. & Palfrey Thomas R., 1995. "Ratifiable Mechanisms: Learning from Disagreement," Games and Economic Behavior, Elsevier, vol. 10(2), pages 255-283, August. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Takako Fujiwara-Greve & Masahiro Okuno-Fujiwara, 2006. "Voluntarily Separable Prisoner's Dilemma," CIRJE F-Series CIRJE-F-415, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
Luis Cabral & Ali Hortacsu, 2006. "The Dynamics of Seller Reputation: Evidence from eBay," Working Papers 06-32, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
Atila Abdulkadiroglu & Kyle Bagwell, 2005. "Trust, reciprocity and favors in cooperative relationships," Discussion Papers 0405-22, Columbia University, Department of Economics. [Downloadable!]
Luis Cabral & Ali Hortacsu, 2004. "The Dynamics of Seller Reputation: Theory and Evidence from eBay," NBER Working Papers 10363, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Cabral, Luís M B & Hortaçsu, Ali, 2004. "The Dynamics of Seller Reputation: Theory and Evidence from eBay," CEPR Discussion Papers 4345, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Luís Cabral & Ali Hortacsu, 2004. "The Dynamics of Seller Reputation: Theory and Evidence from eBay," Working Papers 04-05, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
Rafael Rob & Huanxing Yang, 2006. "Long Term Relationships as Safeguards," Levine's Working Paper Archive 618897000000001039, UCLA Department of Economics. [Downloadable!]
Susan Athey & Kyle Bagwell, 2007. "Collusion with Persistent Cost Shocks," Levine's Bibliography 321307000000000898, UCLA Department of Economics. [Downloadable!]
Other versions:
- Susan Athey & Kyle Bagwell, 2004. "Collusion with persistent cost shocks," Discussion Papers 0405-07, Columbia University, Department of Economics. [Downloadable!]
- Susan Athey & Kyle Bagwell, 2004. "Collusion with Persistent Cost Shocks," Levine's Bibliography 122247000000000334, UCLA Department of Economics. [Downloadable!]
- Susan Athey & Kyle Bagwell, 2008. "Collusion With Persistent Cost Shocks," Econometrica, Econometric Society, vol. 76(3), pages 493-540, 05. [Downloadable!] (restricted)
Luis Araujo & Emanuel Ornelas, 2005. "Trust-Based Trade," IBMEC RJ Economics Discussion Papers 2005-08, Economics Research Group, IBMEC Business School - Rio de Janeiro. [Downloadable!]
Other versions:
- Luis Araujo & Emanuel Ornelas, 2007. "Trust-Based Trade," CEP Discussion Papers dp0820, Centre for Economic Performance, LSE. [Downloadable!]

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